Playing the Cycle in Energy MLPs

I'm a trader, so no matter how bullish or bearish I am at any time, I know that all markets run through cycles. That's fundamental and important to the way I invest, as well. I try to evaluate sectors and individual stocks dispassionately, and I look to buy issues when they are unloved and sell them when they're driving incessantly higher.

It's not about ignoring the facts; there are, of course, reasons that individual stocks both rocket higher and drop precipitously. But, barring fantastic new facts that fundamentally change the underlying value of shares, momentum creates some of the greatest values, both when buying and when selling.

These last several weeks have seen a good number of some of my favorite stocks explode to the upside -- energy master limited partnerships. While there are fundamental reasons for the strength in many of these, this hasn't been enough to stop me from cashing in many of them. I just think I'll get a chance to buy all of these much more cheaply before the end of the year.

The timing with the upcoming fiscal cliff worries isn't a bad reason to take money off the table, either. One thing I know for sure is that these gains will be taxed at 15%, and I'm not sure if that will be true in 2013 or 2014.

Let me just show you some MLP charts -- Access Midstream Partners (ACMP), TransMontaigne (TLP) and El Paso Pipeline (EPB). This will give you some idea of the cyclical nature of these names, and the recent relative strength they are showing. Maybe they'll also give you an idea of another MLP that's at the other end of the spectrum, and a possible value buy, and not sale.

Now finally, here's one that looks like a buy.

Crestwood (CMLP) is majority-staked to a private equity group, and that offers some advantages for shareholders, but many negatives as well. The company made asset purchases from Devon (DVN) at a somewhat high rate on earnings before interest, taxes, depreciation and amortization. That, in turn, forced a recent secondary offering, and Crestwood reported dropping volumes, which is the lifeblood of any MLP. The company is almost entirely leveraged to shale and dry gas in the Barnett and Marcellus regions, and it's sustained a few recent downgrades. All of this has weighed on the share price.

However, rig counts about as low as I imagine they will go, and sequestering and the shift to liquids are occurring nationally. Given this -- and given that natural gas prices, I think, are inevitably headed higher -- these negative fundamentals strike me as warranting no more than a cyclical move down in the shares. That makes Crestwood a compelling buy. The 8.5% distribution is safe, as well, I believe.

These are the types of opportunities you should be seeking as we move past the third quarter. It's a chance to take money off the table in shares that have benefited from big momentum moves, like the energy MLPs, and perhaps to reallocate some of those profits into better values.

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